12 - Enterprise-wide risk management

Abstract

Enterprise-wide risk management is normally regarded as the ability to consolidate market risk across the organization. All the risk categories are interconnected, and it is no longer sufficient for organizations to concentrate on market, credit, or operational risks individually. The risk measurement systems and processes are simply tools and not substitutes for good judgment. The phrase “risk management,” particularly when applied to enterprise-wide or operational risk management, can be rather misleading. Key components of the overall enterprise-wide risk management system are the risk measurement, data integration, exposure monitoring, and management information systems. Within the financial institutions, the use of technology is fundamental to the running of the business. A modern financial institution cannot function without this technological infrastructure. The variety and complexity of financial instruments traded by most financial institutions means that the assessment, evaluation, and control of risk cannot be undertaken without substantial investment in technology. The enterprise-wide risk management system is essential for managing risk across the organization. It has to take data from all the various systems and provide an integrated environment, analytical tools, and management reports.